As a small business owner, you have had to put together your own capital to start your enterprise. While the business idea you have come up with is great, you find that the return on investment will be greater if you can invest more funds into your start up. However, you also find that banks and other financial institutions are wary of lending to a small business, and business credit is hard to come by. This is a situation faced by many small business owners.
Avoid Personal Credit
While small business credit is difficult to obtain, it is not impossible. By taking the correct steps to convince potential lenders of the credit worthiness of your business, you will soon be able to borrow sufficient funds for your business needs. Many entrepreneurs make the mistake of using personal credit to fund their business. While this can work as a short term solution, it does more harm in the long term. Unless your business is able to borrow funds on its own, future expansion projects will be difficult. Moreover, by using personal credit, you risk damaging your credit rating in the event that the business fails.
Plan Ahead
To avoid these pitfalls, plan early to build business credit. This can be done by taking steps to establish a separate identity for the business. All you need to do is register your business with the local authorities and obtain a separate phone number for your business.
Build a History
Next obtain a business credit card and use it to pay for small office purchases and gas. Ensure that you pay the credit cards dues in full and on time each month. The credit card company will report this positive behavior to the credit rating agencies, which, in turn, will rate your business as a good debtor.
One can also ask for credit from suppliers and vendors. After paying them on time, ask them to report this payment pattern to the credit rating agencies. This too will help increase the credit score of your business. This will help build business credit for your company.
Approach Banks
Banks also extend corporate credit to those businesses that are able to offer them collateral. If your business has assets such as land or machinery, then you should make full use of them by offering them as collateral. Not only will this security makes banks and other lenders release money faster, they will also lower their lending rates. This is because the interest rates are a factor of the risk involved.
Consistency Pays
Once the credit profile of your business is built through these methods, it will be easier for the business to borrow money. By being consistent in your repayment habits and ensuring that small sums advanced in the beginning are paid back on time, you will ensure that your business has sufficient borrowing capacity when the need arise.
Business credit just like personal credit is advanced on trust. By honoring your commitments to the lender, you will be able to soon borrow large sums for expansion projects.